VeriSign (VRSN) Q4 Earnings and Revenues Beat Estimates
VeriSign Inc. (VRSN) reported fourth-quarter 2016 adjusted earnings of 84 cents a share, surpassing the Zacks Consensus Estimate of 79 cents. Earnings increased from 77 cents reported in the year-ago quarter.
Revenues increased 5% year over year to $286.3 million, ahead of the Zacks Consensus Estimate of $282.9 million.
Verisign Inc. - Earnings Surprise | FindTheBest
Quarter Details
In the quarter, domain name registrations for .com and .net together grew 1.7% year over year to 142.2 million. VeriSign processed 8.8 million new domain name registrations for .com and .net, a decrease from 12.2 million processed in the year-ago quarter.
VeriSign’s renewal rate for the last quarter was 73%, up 110 basis points (bps) year over year. For the reported quarter, the exact renewal rate figures will be available after 45 days from Dec 31, 2016. The company estimates it to be 67.5% compared with 73.3% in the year-ago quarter.
Margins
VeriSign reported non-GAAP operating income of $183.1 million, up 7.6% over the prior-year quarter. The company’s non-GAAP operating margin was 63.9% in the quarter, up from 62.4% in the prior-year quarter.
Non-GAAP adjusted EBITDA was $199.1 million, an increase of 7.2% year over year.
Other Financial Details
Exiting the quarter, the company’s cash and cash equivalents (including marketable securities) were approximately $1.8 billion compared with over $1.9 billion at the end of 2015.
Operating cash flow in the quarter was approximately $195 million, up 3.2% year over year, while free cash flow was $198 million, up 12.5% from the year-ago quarter.
VeriSign repurchased approximately $160 million worth of shares in the quarter, taking the total share repurchases in the year to $637 million. As of Dec 31, 2016, the company had $637 million available under its current share repurchase program. The company authorized an additional share buyback program worth $641 million, which takes the total repurchase authorization to $1 billion.
VeriSign, Inc. Price, Consensus and EPS Surprise
VeriSign, Inc. Price, Consensus and EPS Surprise | VeriSign, Inc. Quote
Guidance
For 2017, VeriSign expects revenues between $1.138 billion and $1.158 billion. Non-GAAP operating margin is now expected within a range of 64% to 65%.
Moreover, the Zacks Consensus Estimate for revenues in 2017 stands at $1.17 billion and earnings per share is pegged at $3.56.
Capital expenditure is expected in a range of $35 million to $45 million.
Our Take
VeriSign holds a prime position in the highly regulated .com and .net domain industry. The renewal of the .com contract and price hikes for the .com and .net domain names will continue to drive VeriSign’s top line. Also, we believe that gTLD prospects, international expansion through IDNs and investments in intellectual properties will boost results. Additionally, VeriSign has significant growth opportunities in the Distributed Denial of Service (DDoS) security market. VeriSign also has significant growth opportunities in the network security products space.
Furthermore, a company executive stated, “2016 saw a number of significant achievements for Verisign, which included obtaining ICANN and Commerce Department approval for extending the .com agreement to 2024, the continuation of our unique role of publishing the global internet root zone through a new agreement with ICANN, and surpassing 19 years of uninterrupted availability of the Verisign DNS for .com and .net”. This is a big positive in our view.
However, the negative impact of search engine adjustments on domain monetization and increasing operating expenses related to marketing remain primary headwinds.
We also note that VeriSign’s shares have gained 11.26% in the past one year, underperforming the Zacks categorized Internet Software Service industry, which gained 40.30%.
VeriSign carries a Zacks Rank #3 (Hold).
Better-ranked stocks in the broader tech space are Jabil Circuit Inc. JBL, Oclaro, Inc. OCLR and MeetMe, Inc. MEET. While Jabil sports a Zacks Rank #1 (Strong Buy), Oclaro and MeetMe carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
In the trailing four quarters, Jabil, Oclaro and MeetMe delivered an average positive earnings surprise of 45.61%, 75% and 36.07%, respectively.
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